CLUTCH CARGO

The most profitable time of the year in the shipping business -- the holiday delivery season that began in August and runs through December -- is going to be a difficult one for the Chicago-area freight industry.

The flood of imports from Asia, pile-ups at the ports of Los Angeles and Long Beach, Calif., and railroad congestion in the Western United States are making this year one of the toughest in memory for an industry already struggling to keep up with rapidly changing technologies.

"At one time, all a freight forwarder needed was a desk and a phone," says Jim Foster, executive director of the California-based Airforwarders Assn., a national industry group.

In an age of global business, complex supply chains and shrinking profit margins, the need for efficient delivery of goods is more urgent and complex.

More companies are turning to third-party logistics operators -- known in the industry as 3PLs -- with the technical expertise to move and track freight around the globe. Logistics companies rely on trucks with on-board computers, trains with global positioning systems and freight forwarders with software that can track packages in real time via the Internet.

The Chicago area is home to about 350 freight forwarding companies, owing largely to its central location. Long a major trucking and rail hub, it's also a growing air freight center.

About 1.3 million tons of freight was shipped into O'Hare last year, an 11% increase over the previous year and almost double the tonnage that arrived in 1986, primarily a result of increased cargo flights from Asia. (It's believed that Chicago's least-welcome immigrant, the Asian long-horned beetle, probably traveled here in a wooden cargo pallet aboard one of those flights.)

Chicago is also a hub of intermodal shipping -- combining ship with railroad or truck transport -- which has been growing nationally about 8% a year for most of the decade.

The Chicago Area Transportation Study (CATS), a branch of the Illinois Department of Transportation, estimates that 2.4 million tons of freight arrived here by rail in 1996. The intermodal industry pumps about $8.7 billion into the local economy, a number CATS expects to triple by 2020.

But this developing industry is not without growing pains. Fallout from Asia's economic crisis is straining even the most sophisticated operators. Forwarders are scrambling to make sure their shipments don't get bumped off a crowded freighter or ignored in a busy railroad depot. Their relationships with carriers are more important than ever, as is their ability to steer cargo around trouble spots.

Unfortunately, says Mark Wyman, principal at PMC, a Massachusetts-based logistics consulting firm, "there's no easy way to get freight from Asia to Chicago right now."

Missed deadlines

A flood of inexpensive Asian imports is clogging the docks in Los Angeles, where about 2,000 shipping containers were backlogged in late August. The cross-country trains that usually pick up the freight are running into delays caused by a shortage of railcars and lingering problems from last year's merger of the Union Pacific and Southern Pacific lines.

Integration of the two lines caused bottlenecks in the South last year and in the West in early August. The railroad has been operating under a federal emergency service order since last October, although the U.S. Surface Transportation Board last month eased some of the emergency provisions.

"Right now, we're losing a week on the sea and a week on the rail," says Eric Hirsh, president of Three Jays Imports Inc., a Northbrook wholesaler of Christmas decorations imported from Hong Kong. "Most of our customers find that unacceptable."

The result is missed deadlines for distributors and wholesalers trying to get goods to retailers in advance of the holiday shopping season.

"Retailers that want Christmas merchandise by a certain time are finding it's not getting there," says Vickie Reilly, president and founder of A. V. Reilly International Ltd., a Wood Dale-based freight forwarder. "These delays wreak havoc in the supply chain."

Empty containers are stacking up at intermodal hubs in Chicago, while in Asia, there is a container shortage.

"For the system to work, cargo has to move both ways," says William McInerney, CEO of Phoenix International Freight Services Ltd. in Wood Dale. "It's a real mess."

Phoenix sent faxes to customers early in the year warning that holiday shipping would be a problem. In July, the company informed customers that railroad and Asia problems were mounting.

"The situation is changing week to week," Mr. McInerney's letter to customers said. "We can't say exactly how much worse it will get."

Rising air rates

Air freight is not moving much better.

The trade imbalance was clear as early as June, according to the city's Department of Aviation, when Asian freight carriers shipped far more cargo to O'Hare than back to Asia.

Japan Airlines imported 1,482 tons of cargo in June while exporting 719 tons; Korean Airlines brought in 1,718 tons and flew out 1,270; Nippon Cargo Airlines brought in 2,313 tons and took out 515.

Carriers forced to fly empty planes back to Asia pass the increased costs on to customers, making air shipping an even more expensive option than usual. Air freight for Three Jays' products, says Mr. Hirsh, can cost 10 times as much as an ocean trip.

Companies are using different strategies to navigate around the logistical problems.

Hoffman Estates-based Sears, Roebuck and Co. is rerouting some Los Angeles shipments to New York and Tacoma, Wash., a spokeswoman says. "Contingency planning is something you do every day in the logistics business. . . . We're managing our way through it."

Sears is somewhat protected by its vast distribution network, says Executive Vice-president Gus Pagonis, a former U. S. Army officer and Gen. Norman Schwartzkopf's director of logistics operations during the Persian Gulf War.

"Just like in a battle, you don't attack your enemy from just one side; you flank them," he says. "We have a setup that allows us to sidestep problems."

Chicago-based catalog retailer Hammacher Schlemmer & Co. is bypassing the railroads, paying slightly more to move holiday merchandise by truck from Los Angeles to a distribution hub in Ohio. "We're advising clients to stick to the highways as much as possible," says PMC's Mr. Wyman, who advises Hammacher Schlemmer.

Importers like Three Jays have been worrying about the freight problems for months. "We started shipping our Christmas goods in March," says Mr. Hirsh, who usually starts shipping in August.

When shipping costs begin squeezing margins, many companies consider outsourcing to a logistics expert. These specialty firms provide bundled transportation services including not only the delivery of finished goods but also inventory management for just-in-time factory operations and strategic planning for future needs.

New technologies allow freight forwarders to put together increasingly complicated shipping systems. In 1997, Hub Group Inc., a Lombard-based intermodal freight carrier with more than $1 billion in 1997 sales, designed a closed-loop transit system for a General Motors Corp. subsidiary that delivers parts from a factory to a distribution center, takes recyclable items to a recycling center and returns the recycled components back to the factory.

Minnesota-based Manna Freight Systems Inc., which recently opened a Chicago office, took over shipping arrangements for MTS Systems, a manufacturer of custom testing equipment in Minnesota. The firm has 72 field technicians who often have to order parts for immediate delivery all over the world.

Tracking via Internet

In the past, the company made dozens of phone calls to make sure parts were being delivered on schedule, says Bob Kemper, MTS manager of distribution and logistics. Today, Manna makes the deliveries through an Internet tracking system.

"Now," Mr. Kemper says, "we never pick up the phone."

A Sept. 14 report on the freight industry incorrectly reported the annual tonnage of rail freight shipped to Chicago in 1996. It was 2.4 million tons a day. (printed 9/21/98 issue)